An Opportunity to Bridge the Pond's Digital Gap
May 4, 2018
The U.S. Department of Commerce outlines a variety of activities as falling under the umbrella of ‘digital trade.’ A primary form of this is digital business services between countries, from Salesforce’s business management software, to movie streaming on Netflix, to online shopping at Amazon. A wider range of digital trade activities includes any digital transfer of information, whether email, social media messages, or pictures, over international borders. According to a McKinsey & Company report, cross border data flows grew by 45 times between 2005 and 2014, reaching $2.8 trillion in data flows in 2014. This growth rate is markedly larger than growth in international trade or financial flows.
Despite this meteoric growth, the Congressional Research Service (CRS) identified several barriers to trade, including tariffs on digital services. Additionally, the CRS recognized “localization requirements, cross border data flow limitations, intellectual property rights (IPR) infringement, unique standards or burdensome testing, filtering or blocking, and cybercrime exposure or state-directed theft of trade secrets…” as barriers to digital trade. Issues such as data localization and the different ‘poles’ of digital trade policy have been explored in other blog posts in this series. The United States, as the leader of the ‘liberalizers’ in digital trade policy, seeks a free and open internet with as few of the above-mentioned barriers to digital trade as possible. In the past, the United States has worked these into several regional trade agreements and fought for digital openness provisions while negotiating the Trans-Pacific Partnership. Despite later pulling out of TPP, these digital trade provisions remained in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership that was signed in March 2018.
If past is prologue, it is certain any future U.S.-UK bilateral trade agreement will include digital trade provisions. The question remains though: when will this happen? President Obama famously said the United Kingdom would be at the “back of the queue” of countries the United States prioritizes for negotiating a trade agreement. The Trump administration, however, has brought the United Kingdom to the front of the queue and refocused the conversation in London and Washington on negotiating and signing a bilateral U.S.-UK FTA as expediently as possible. During her visit to Washington less than one week after President Trump took office, Prime Minister Theresa May made trade a top priority for the United Kingdom and discussed with President Trump how to “establish a trade negotiation agreement, take forward immediate, high-level talks, [and] lay the groundwork for a UK-U.S. trade agreement…” More recently, in January 2018, President Trump promised “We are going to make a deal with U.K. that’ll be great…” once the U.K. formally leaves the European Union. Despite public statements of support for such an agreement, and conversations between the two governments on the subject, neither a concrete timetable for negotiations nor specific policy details have emerged.
A sticking point in any negotiation will be the European Union data privacy and localization law, the General Data Protection Regulation (GDPR). The United Kingdom must continue to follow the GDPR until it formally leaves the EU. In his piece, Jonathan Hillman terms the EU as the leader of the ‘regulators’ faction when it comes to digital free trade. While supporting an open internet, the EU also places stricter controls than the United States on individual data privacy and some restrictions on data localization, that is, where data about EU citizens can be stored and who can access it.
Therein lies a significant challenge to digital synchronization between the United States and United Kingdom after Brexit. The EU remains the largest single export market for British exports, with 44 percent of goods and services going to other EU nations in 2016-2017. While the United States is the second largest destination for British goods and services, at 19 percent, harmonizing with the EU remains an understandably stronger pull for British policymakers than with the United States. The British Government recognizes the need for synchronization between Post-Brexit British policies and the EU GDPR law. In a speech in early March 2018, Prime Minister May laid out her vision for Britain’s digital trade policy future with the EU. She argued that “the free flow of data is… critical for both sides in any modern trading relationship…” while touting the U.K.’s “exceptionally high standards of data protection.” For May, the goal is to seal “an agreement with the EU that provides the stability and confidence for EU and UK business and individuals to achieve our aims in maintaining and developing the UK’s strong trading and economic links with the EU.” While talk on a U.S.-UK bilateral FTA has thus far amounted to platitudes, May’s government has a concrete goal for a post-Brexit digital relationship with the EU: maintaining the free flow of data between the EU and the United Kingdom, with strong data security, so that digital trade can continue without hindrance to business. Central to this goal is for the British to achieve ‘data adequacy.’
‘Data adequacy’ is a designation a third-party country receives from the EU. It certifies the recipient nation meets EU GDPR data standards, and allows EU stored data to freely flow there. Currently, only twelve nations meet those standards, with the United States currently deemed adequate only for commercial purposes. To facilitate transatlantic data transfers, the EU-U.S. Privacy Shield Agreement was signed in 2016. While ensuring data regarding EU citizens is protected and can continue to flow to U.S. companies, the agreement is not a permanent, comprehensive fix to the problem. It is subject to an annual review on both sides of the Atlantic and continues to face significant legal challenges in Europe. EU citizens claim it fails to fully protect personal data as required by Article Eight of the EU Charter of Fundamental Rights. At any moment it could become invalidated. With the United Kingdom focused on achieving full data adequacy post-Brexit, the onus may be on the United States to update its laws if it wishes to further a digital trade agenda with the United Kingdom.
Despite these challenges, the policies of post-Brexit Britain have yet to be written. In this window, there is great opportunity to work together toward further harmonization of digital trade standards. With digital trade growing at breakneck speed, the importance of including mutually approved standards in the future grows as well. Any bilateral U.S.-UK FTA will powerfully advance a global digital free trade agenda. With a combined market of nearly 400 million people and economic output well above $20 trillion, mutually acceptable standards will create a significant coalition in the emerging global marketplace on digital free trade. With a renegotiated NAFTA likely containing a digital trade component, the United Kingdom could be joining a $20 trillion North American market with nearly 500 million people of unified standards. The United Kingdom could also serve as an intermediary in harmonizing remaining differences between the United States, Canada, Mexico, and the EU on digital trade. At its furthest reach such a bloc, representing nearly a billion people and almost one half of global economic output, would have far reaching power to shape this issue for generations to come. Most importantly, it could also serve as a bulwark against countries that exert more draconian control on the internet and digital trade, including China and Russia.